Putnam Municipal Bond Funds

Transcription

1 Q Putnam Municipal Bond Funds A tax-smart approach to investing putnam.com Municipal bonds offer a source of tax-free income with a low historical level of risk. Putnam's municipal bond team has more than two decades of investment experience. Putnam's wide range of funds has generated attractive long-term performance. Thalia Meehan, CFA Portfolio Manager Paul M. Drury, CFA Portfolio Manager Susan A. McCormack, CFA Portfolio Manager

2 Municipal bonds offer tax-free income and a low historical level of risk The tax-free advantage Unlike Treasuries or corporate bonds, the interest paid on municipal bonds is free from federal and, in some cases, state and local income taxes. That can make municipal bonds particularly attractive to investors subject to higher personal income tax rates. A low historical default rate Municipal bonds have been an asset class with limited risk of default. Over the past five years, corporate bonds defaulted at a rate more than 100 times higher than municipal bonds. Municipal bonds tax benefits can make their income potential more attractive than other types of bonds Yield and annual after-tax income generated by a hypothetical $100,000 investment as of 6/30/15 Yield After-tax income Muni bonds can give you more after-tax income than many alternatives. 3.36% $2,330 $1, % 1.48% $ % $153 Three-month CDs Treasuries Investment-grade corporates Municipal bonds Source: Putnam, as of 6/30/15. Yields for Treasuries, investment-grade corporates, and municipal bonds are represented by the average yield to worst a calculation of the lowest possible yield generated without defaulting of the Barclays U.S. Treasury Index, the Barclays U.S. Corporate Bond Index, and the Barclays Municipal Bond Index, respectively. Yields on three-month CDs are the national average as reported by Bloomberg. Unlike other investments that incur more risk, the interest and principal value of CDs are fixed and are insured by the FDIC up to $250,000. Bonds incur investment risk; CDs do not. Income from municipal bonds may be subject to the alternative minimum tax. Taxable-equivalent yield and annual after-tax income are based on a 43.40% federal income tax rate. This rate reflects the American Taxpayer Relief Act of 2012 and includes the 3.80% Medicare surtax. Municipal bonds help finance a variety of projects EDUCATION School districts, colleges, universities, student loan programs HEALTH CARE Hospitals, long-term-care facilities HOUSING Single- and multifamily housing INDUSTRIALS Chemical, container, paper, and waste management companies UTILITIES Public and private utilities, waterworks, sewers 2

3 Defaults in the municipal bond market have been a relative rarity Five-year average cumulative default rates, all rated securities 10% Through recessions and expansions, defaults consistently have remained below 1% Defaults as a percentage of municipal bond market 0.12% 8% 7.55% 0.10% 0.08% 6% 0.06% 4% 0.04% 2% 0.02% 0% 0.07% Municipal bonds Corporate bonds 0.00% Source: Moody s, U.S. Municipal Bond Defaults and Recoveries, (May 2014). Sources: BAML, Putnam, as of 6/30/15. Municipal bond credit spreads have narrowed, but still remain attractive Municipal bond spreads by quality rating 500 AA A BBB /30/15 Source: Putnam, as of 6/30/15. Credit ratings are as determined by Putnam. Despite rallying since the 2008 credit crisis, the "spread" or yield advantage that certain segments of the market offer versus the highest-rated AAA securities is still higher than usual, suggesting parts of the market may be undervalued today. 3

4 A tenured team of industry veterans Experienced managers in a deep organization Putnam s team of portfolio managers specializing in tax-free investing has 27 years of investment experience on average, and is part of a broader fixed-income organization of more than 70 investment professionals. They provide comprehensive coverage of the risk and opportunities in fixed-income investing. Leveraging technology in new ways The tax-exempt team has used technology to leverage research insights by building a proprietary web database that tracks characteristics of over a million municipal bonds. This tool, combined with accumulated internal credit research, allows the team to react quickly when opportunities or risks arise. Putnam s municipal bond team has managed money through all kinds of markets and has worked together at Putnam for more than 19 years. Thalia Meehan, CFA Investing since 1983 Joined Putnam in 1989 Paul M. Drury, CFA Investing since 1989 Joined Putnam in 1989 Susan A. McCormack, CFA Investing since 1986 Joined Putnam in 1994 The team's disciplined process has helped lend stability to Putnam. February 1989: Federal government bails out savings and loan industry December 1994: Orange County, CA, declares bankruptcy September 1998: -Term Capital Management collapses September 2001: Terrorists attack World Trade Center and Pentagon June 2008: Credit ratings cut for municipal bond insurers Summer 2007: Subprime mortgage crisis August 2011: S&P cuts ratings on Treasuries and 11,000 munis with ties to federal government June 2013: S&P revises its outlook on Treasuries to stable from negative /30/15 On 10/30/89, this fund had a three-for-one split. The price before the split was $25.83 and after the split was $8.61. Prices prior to this have been adjusted to reflect the split. Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares is shown before, assumes reinvestment of distributions, and does not account for taxes. Had the 4.00% (1.00% for Putnam Short-Term Municipal ) been reflected, returns would have been lower. For a portion of the periods, this fund may have had expense limitations, without which returns would have been lower. To obtain the most recent month-end performance, visit putnam.com. 4

5 Today s market demands a disciplined investment process The municipal bond market has changed dramatically over the past decade, and Putnam has responded with new ways of thinking. In 2005, more than 50% of new municipal bonds carried third-party insurance against default, and as a result, many investors viewed the market as uniform and essentially risk free. Today, less than 10% of new municipal issuance carries insurance, while only 6% of the market is rated AAA. In reality, the municipal bond market is nuanced and complex, and we believe successful investing requires intensive fundamental research at the security level the kind of research Putnam s municipal bond team has been producing for nearly 20 years. $3.7 trillion 1 2 municipal bond MACRO VIEW AVAILABLE SUPPLY market 3 FUND FIT 4TRADE EXECUTION 1. MACRO VIEW Establish our overarching strategy How do we want to position the funds regarding interest rates? How much credit risk do we want to assume? 2. AVAILABLE SUPPLY Filter investment options What is the credit outlook for the issuers we are monitoring? What is the structure of the bonds available? Are they attractive on a relative value basis? 3. FUND FIT Determine the size of our investments How large an investment is warranted? If applicable, which states do we want to invest in? 4. TRADE EXECUTION Implement efficient buys and sells We seek the best execution of trades possible, which helps limit fund expenses. Sources: Moody s, U.S. Municipal Bond Defaults and Recoveries, , February 2010; Morgan Stanley Smith Barney, Global Investment Committee Special Report, Navigating the Transition of the Municipal Bond Market, April 18, Consider these risks before investing: Capital gains, if any, are taxable for federal and, in most cases, state purposes. Income from federally tax-exempt funds may be subject to state and local taxes. Income from federally tax-exempt funds may be subject to state and local taxes. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is greater for longer-term bonds, and credit risk is greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. Tax-exempt bonds may be issued under the Internal Revenue Code only by limited types of issuers for limited types of projects. As a result, the funds investments may be focused in certain market segments and be more vulnerable to fluctuations in the values of the securities it holds than a more broadly invested fund. Interest the fund receives might be taxable. The prices of bonds may fall or fail to rise over time for several reasons, including both general financial market conditions and factors related to a specific issuer or industry. You can lose money by investing in the funds. Single state investments are at risk of common economic forces and other factors affecting a state's tax-exempt investments. This may result in greater losses and volatility. 5

6 Putnam is a leader in tax-free investing A broad range of options Putnam offers a complete range of municipal bond funds, including high-yield and AMT-free portfolios, and state-specific funds, which are also free from state and local taxes. Income Fund Tax-Free High Yield Fund* AMT-Free Municipal Fund* Short-Term Municipal Intermediate- Term Municipal 6.58% 6.17% 6.01% 0.41% 1.47% 3.46% 5.05% 3.07% 0.55% 1.77% California Arizona Minnesota Michigan Ohio New York 6.49% 5.16% 5.16% 5.18% 5.16% 6.55% 4.12% 2.79% 2.84% 3.14% 3.19% 3.82% Pennsylvania 5.40% 3.39% New Jersey 5.29% 3.96% Massachusetts 5.74% 3.33% 6 Source: Putnam, as of 6/30/15. 1The performance of the fund s class A shares for the period prior to 9/20/93 is based upon the performance of the fund s class B shares (inception 9/9/85), adjusted for the applicable or contingent deferred. Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or a loss when you sell your shares. Performance of class A shares after assumes reinvestment of distributions and does not account for taxes. After-sales-charge returns reflect a maximum 4.00% (1.00% for Putnam Short-Term Municipal ) load. For a portion of the periods, these funds may have had expense limitations, without which returns would have been lower. Putnam money market funds have no initial. To obtain the most recent month-end performance, visit putnam.com. The funds' expense ratio is taken from the most recent prospectus and is subject to change. Taxable-equivalent yields are based on the funds' 30-day SEC yields. Those shown for Putnam Arizona, California, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania Income funds assume a combined federal and state tax rate of 45.97%, 50.93%, 46.31%, 45.81%, 48.98%, 48.48%, 50.59%, 46.42%, and 45.14%, respectively, inclusive of the 3.80% Medicare surtax. Income, Tax-Free High Yield, AMT-Free Municipal, Short-Term Municipal Income, and Intermediate-Term Municipal Income funds assume a maximum federal income tax rate of 43.40%, which includes the 3.80% Medicare surtax.

7 Data for class A shares as of 6/30/15 Annualized returns after 30-day SEC Load-waived/risk-adjusted Morningstar ratings (number of funds in category) 1 year 5 years 10 years yield Overall 3 years 5 years 10 years Category AMT-Free Municipal Fund (PPNAX) Inception: 9/20/93 Total expense ratio: 0.78% 3.66% 4.56% 4.15% 1.74% (190) (190) (178) (145) Muni National Intermediate-Term Municipal (PIMEX) Inception: 3/18/13 Total expense ratio: 1.76% What you pay: 0.85%* 1.40 N/A N/A 1.00% Muni National Intermediate Short-Term Municipal (PSMEX) Inception: 3/18/13 Total expense ratio: 1.42% What you pay: 0.60%* 0.13 N/A N/A 0.31% Muni National Short (PTAEX) Inception: 12/31/76 Total expense ratio: 0.75% % (190) (190) (178) (145) Muni National Tax-Free High Yield Fund (PTHAX) Inception: 9/20/93 Total expense ratio: 0.80% % (159) 4/2 stars (159) (149) (95) High Yield Muni Arizona (PTAZX) Inception: 1/30/91 Total expense ratio: 0.92% What you pay: 0.91%* % (274) (274) (262) (214) Muni Single State California (PCTEX) Inception: 4/29/83 Total expense ratio: 0.74% % (117) (117) (108) (91) Muni California Massachusetts (PXMAX) Inception: 10/23/89 Total expense ratio: 0.77% % (61) (61) (59) (51) Muni Massachusetts Michigan (PXMIX) Inception: 10/23/89 Total expense ratio: 0.85% % (200) (200) (188) (175) Muni Single State Intermediate Minnesota (PXMNX) Inception: 10/23/89 Total expense ratio: 0.83% % (57) (57) (52) (43) Muni Minnesota New Jersey (PTNJX) Inception: 2/20/90 Total expense ratio: 0.79% % (57) (57) 2/2 stars (55) (42) Muni New Jersey New York (PTEIX) Inception: 9/2/83 Total expense ratio: 0.74% % (96) (96) (80) (75) Muni New York Ohio (PXOHX) Inception: 10/23/89 Total expense ratio: 0.81% % (49) (49) (47) (37) Muni Ohio Pennsylvania (PTEPX) Inception: 7/21/89 Total expense ratio: 0.79% % (73) (73) (72) (60) Muni Pennsylvania 1"What you pay" reflects Putnam Management's decision to contractually limit expenses for Intermediate-Term Municipal though March 30, 2016, Short-Term Municipal through March 30, 2016, and Arizona through September 30, With expense limitation. 3Without expense limitation. For each fund with at least a three-year history, Morningstar calculates two sets of ratings based on a fund's monthly performance, placing more emphasis on downward variations and rewarding consistent performance. Risk-Adjusted Ratings reflect the effects of s, loads, and redemption fees; Load-Waived Ratings exclude those effects. Load-Waived Ratings should only be used by investors not subject to the. Load-waived share classes are for qualified plan participants only (e.g., plan participants of a defined contribution plan). The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. Data is historical. Past performance is no guarantee of future results. Morningstar Ratings shown are for class A shares only; other classes may have different performance characteristics. 7

8 Support your investment decisions with sound advice In a world of rapidly changing markets, a full-service financial representative can be one of your most important assets. A financial representative can help you clarify your objectives, evaluate your tolerance for risk, and create a long-term strategy to help you reach your financial goals. And with thousands of mutual funds available to investors, a financial representative can also help you narrow the field to those investments that have the potential to meet those goals. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus or summary prospectus containing this and other information for any Putnam fund or product, contact your financial representative or call Putnam at Please read the prospectus carefully before investing. A BALANCED APPROACH Since 1937, when George Putnam created a diverse mix of stocks and bonds in a single, professionally managed portfolio, Putnam has championed the balanced approach. A WORLD OF INVESTING Today, we offer investors a world of equity, fixedincome, multi-asset, and absolute-return portfolios to suit a range of financial goals. A COMMITMENT TO EXCELLENCE Our portfolio managers seek superior results over time, backed by original, fundamental research on a global scale. We believe in the value of experienced financial advice, in providing exemplary service, and in putting clients first in all we do. One Post Office Square Boston, MA Putnam Retail Management FB /15 putnam.com